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There has been great excitement about the recent breakthroughs in MEMS and Nanotechnology.  The natural question many people have had is how to make money on these exciting new technologies. 

The first word should be caution.  While there is a great amount of excitement about MEMS and Nanotechnology breakthroughs, there can be significant barriers to achieving commercial success. These fields have been plagued by extensive hype, and with many of the research breakthroughs never successfully making it to successful commercial products.

With this said, it is doubtless that there will be significant opportunities in the MEMS and Nanotechnology that do effectively transition from research to commercial products.

A potential investor should realize that many of the successful MEMS and Nanotechnology commercialization efforts will occur at large, established commercial high tech companies.  These companies have the significant infrastructure, resources, and marketing organization necessary to bring a new product to market.  The challenge is that in many cases, the new MEMS or Nanotechnology would be a small part of the overall company, so the investor is not able to get much leverage when investing in the large company.  The risk can be lower but the potential reward can be modest.

Pre-IPO smaller companies can be highly leveraged to MEMS and Nanotechnology, but the risks of investing in this sector can be very large.  During the telecom bubble,  there were some examples of small companies being very successful in rewarding investors, but since the collapse of the telecom bubble, many of these companies have actually gone out of business.  Investment in small companies and possibly new companies focused on MEMS and nanotechnology can offer significant upside potential if the right company is chosen.

In considering an investment three key issues must be considered: Market, Technology, and Intellectual Property.

Market: The key issue is market potential.  Investors should be wary of a new technology that offers the promise of revolutionizing a broad set of applications.  The key question is what is the one "killer" application that will make the technology, and hence investment, successful.

Technology: A potential investor should be aware that there are significant barriers to taking a technology from a research and prototyping stage to a successful commercial product.  The resources required for making this transition can be significant, and beyond the scope of what many small companies can achieve.  The easy things can turn out to be hard, and hard things can turn out to be impossible.  A potential investor must have significant domain level expertise in order to accurately gauge the technical risk of a potential investment.

Intellectual Property: A potential investor must also consider the strength of the Intellectual property portfolio of the company that is being considered. One must consider the question of what happens if the company has a large potential market, and can overcome the technical barriers . . . how hard would it be for someone else to duplicate the product.  Simply having a patent in the area means little, one must consider how much protection the patent affords, and what other similar patents might exist.

The high potential investment would be one with large Market Opportunity, very low technical risk, and a robust Intellectual Property porfolio.

 

 

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paul.mcwhorter@memx.com

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